If price covers a lot of ground bar by bar but ends up near where it started, the index reads high, indicating chop. If most of the bar-by-bar movement translated into net progress, it reads low, indicating a trend. Values above roughly 60 are conventionally called choppy and below 40 trending.
It answers the same question as adx with a more intuitive construction, and like ADX it gives no direction.
It is entirely backward-looking. A high reading tells you the last N bars were choppy, which is often exactly when a breakout is about to happen. Used as a filter it will keep you out of the start of trends as reliably as it keeps you out of chop.
Related: adx, trading-range, true-range, consolidation, indicator-lag